Does digital transformation substitute for ESG disclosure? Evidence from Indonesian banking

Abstract

Sustainability disclosure is widely assumed to raise firm value, and digital transformation to strengthen that relationship. This study questions the second assumption. Drawing on legitimacy theory, we argue that sustainability and digital disclosure are competing rather than complementary legitimation channels: where a bank already signals transparency through extensive digital disclosure, incremental sustainability reporting carries less marginal legitimacy. We test this on a panel of commercial banks listed on the Indonesia Stock Exchange during a period of accelerated post-pandemic digitalisation and mandatory sustainability reporting. Fixed-effects estimation, reported alongside pooled and random-effects specifications, indicates that the ESG valuation premium is positive but conditional, declining as digital disclosure intensity rises. It is evident among banks with limited digital disclosure and indistinguishable from zero among the most digitally advanced. Technological disruption shows no detectable association with firm value. Dynamic panel estimation returns no significant evidence on the moderation and is reported as an endogeneity probe rather than confirmation, since the observation window is too short to identify dynamic effects reliably. Because both constructs are measured through disclosure, the substitution documented here may operate between reporting channels rather than underlying capabilities, a boundary we state rather than resolve.